Public Bill Committee

[Mr. Roger Gale in the Chair]

New Clause 3

Securing consumer protection
(1) The Financial Services and Markets Act 2000 is amended as follows.
(2) After section 5, insert the following new section
5A Securing consumer protection
(1) This section applies where the Authority becomes aware that any feature or combination of features of a financial services market, product, service, or provider in the United Kingdom is or appears to be significantly harming the interests of consumers.
(2) The Authority must take such action as it considers reasonable and practicable to remedy, mitigate or prevent any detrimental effects on consumers resulting from or relating to the feature or features of a financial services market, product or provider.
(3) The Authority must ensure that action taken under subsection (2) shall have regard to the need to achieve as comprehensive solution as is reasonable and practicable.
(4) Action under subsection (2) may include action by the Authority itself and recommendations on the taking of action by others where the Authority can not by itself meet the requirements of subsection (3).
(5) For the purpose of subsection (1) the Authority becomes aware in the event of any of the following
(a) its own research, reviews, monitoring, supervision or enforcement work;
(b) on a referral by the scheme operator of the ombudsman scheme or the Office of Fair Trading; or
(c) Following acceptance of a request from a designated consumer body made under subsection (6).
(6) A designated consumer body may by presenting evidence of apparent or likely significant harm to the interests of consumers request that the Authority takes action under this section.
(7) The Authority shall within 90 days of a request under subsection (6) publish a response stating
(a) whether it accepts or rejects the need for action; and
(b) the reasons for its decision.
(8) For the purpose of section (5)(c) designated consumer body includes
(a) a body designated by the Secretary of State by order under section 11 of the Enterprise Act 2002;
(b) the financial services consumer panel; or
(c) the consumer financial education body.
(9) The Authority shall prepare and publish a report within one year of any of the events set out in subsection (5) setting out the action it intends to take and the reasons for its decisions.
(10) In this section reference to a financial services market, product or provider refers to regulated activities as defined by Section 22..(Mr. Love.)

Brought up, read the First time, and Question proposed (this day), That the clause be read a Second time.

Question again proposed.

Ian Pearson: It is a pleasure to serve under your chairmanship, Mr. Gale, for this last sitting.
I was saying this morning that although I have great sympathy with the sentiments behind new clause 3 and with what my hon. Friend the Member for Edmonton (Mr. Love) seeks to achieve, I do not believe that it would be right to include it in the Bill. If the provision were accepted, the Financial Services Authority would be obliged to take action in the circumstances described in the new clause with a view to achieving as comprehensive a solution as was reasonable and practicable, regardless of the effect on market confidence or financial stability.
We have heard beforeI said it again briefly this morningthat in some circumstances action that benefits consumers in a particular case might be detrimental to financial stability, which of course could be prejudicial to the interests of consumers more generally. That underlines the interplay between the FSAs objectives. As I said on amendment 41, we do not want to impose too rigid an approach on the FSA. What is needed is a sensible and carefully calibrated approach to taking decisions.
There are other practical reasons why I recommend that the Committee resist the new clause, although I agree that my hon. Friend has done a service to the Committee by raising this important matter. By removing the FSAs discretion to act, the new clause may constrain the authority in its ability to achieve informal or voluntary solutions without taking enforcement action. That could be difficult. On a practical level, the wording of the new clause could result in the FSA being required to take some form of action in every case, or at least to go through the process of considering what action would be reasonable and practicableincluding in relatively minor cases that do not justify such an intensive use of resources.
It is not clear that the new clause would improve on the present position, under which the FSA can act if it considers that such action is appropriate and proportionate. The FSA does not have unlimited resources, and it must be allowed the discretion to prioritise cases and not to act when it seems that the costs may exceed the benefits. In its annual report, the FSA has to say what actions it has taken to achieve its objectives, which means that it can be held to account for its use of that discretion.
I understand that there has been some frustration that the FSA appears not to have responded to complaints or evidence submitted to it. My hon. Friend will be aware that the FSA requires companies to handle complaints within eight weeks; if dissatisfied, consumers can complain to the Financial Ombudsman Service. The FOS can raise issues with the FSA as appropriate. The FSA can also use individual complaints as a pointer to the possibility of wider problems.
I accept that in some cases there may be no way of telling whether appropriate action has been taken in response to a complaint, another issue that was raised by my hon. Friend. There are obvious reasons for that. I shall rehearse some of them. It may be down to fairness, especially before final decisions have been taken against firms, partly because sections 348 and 349 of the Financial Services and Markets Act 2000 restrict the FSAs ability to disclose confidential information relating to the firms that it regulates. Importantly, it reduces the risk of jeopardising further FSA action, as section 391 of the 2000 Act constrains the FSA from disclosing whether it has issued a warning or decision notice against a person who is the subject of an enforcement action.
We discussed some of these issues at length before Christmas, although I realise that my hon. Friend continues to be concerned about such matters. We would all like consumer problems to be addressed as quickly as possible, but the FSA is bound by strict standards of evidence and impartiality. It must investigate hearsay evidence thoroughly, and it will always look for the most proportionate response to a problem, which may involve negotiating voluntary action by firms or issuing guidance. Any rules it makes must be subject to consultation and cost-benefit analysis. Earlier in the debate we heard that there must be adequate checks and balances against arbitrary decisions by the FSA. Imposing deadlines in the way my hon. Friend suggests is not the right way forward.
We want the FSA to be as open as is reasonably possible, but there are good reasons for being careful about disclosure. They would include the legal and fairness issues that I have mentioned, but there are also practical issues. Firms are more likely to provide sensitive information if they believe that the regulator will deal with it in confidence. Concerns that information provided to the FSA could end up in the public domain are likely to change how individual firms behave.
My hon. Friend raised the issue of super-complaints and the proposal for a super-complaints regime. As he said, such a regime applies to the Office of Fair Trading and is contained in the Enterprise Act 2002. However, the OFT does not benefit from a statutory consumer panel, unlike the FSA which is required to consult the financial services consumer panel. I realise that is not identical to designating consumer bodies in the way proposed, but it does give the consumer a powerful voice at the heart of the FSA.
As my hon. Friend knows, we are already giving the FSA tough new powers, and we have debated clause 26, which will require firms to establish consumer redress schemes. The FSA can exercise that power when it appears that there might have been a widespread legal or regulatory breach by firms, which has caused consumers loss. New powers are being introduced in the Bill, and I know that my hon. Friend and others will welcome them.
The FSA and the OFT will soon publish a discussion paper on the action they are taking to ensure that consumers receive swift and effective redress. That will include a discussion of the way that the regulators and the Financial Ombudsman Service work together, the roles and responsibilities of other stakeholders, and how to identify and close down early emerging issues that might affect large numbers of consumers.
The proposals in the Bill on consumer protection that we have already debated take the game forward significantly. Clearly, there are continuing live issues, which can be considered as part of the discussion paper. I hope that what I said this morning and what I have just said will reassure my hon. Friend that his concerns are not only recognised, but being addressed with substance, and that he will feel able to withdraw the new clause.

Andrew Love: It is always a pleasure to serve under your chairmanship, Mr. Gale, and I apologise to you, and perhaps more importantly to the Minister for arriving a few seconds late. I hope I did not miss any of my hon. Friends contribution.
Naturally, I am disappointed that the Minister does not see more merit in the new clause, but I am not surprised that he does not offer it uncritical support. I am somewhat optimistic because in his contribution he recognised some of the concerns about how orientated the FSA is to consumer concerns, and some of the lapses in its promptness and transparency when dealing with such issues.
I shall return to that point, because it bears on the debate that we have just had, but perhaps I could pick up one or two of the comments made during the debate. I apologise to the Committee because my opening contribution on the new clause included a somewhat rhetorical flourish to suggest that the FSA should become a consumer champion. That may have been going just a little too far, because I recognise the concerns expressed by the Minister about the need to balance the differing objectives of the FSA. That is at the core of how we carry the contents of the new clause forward. If hon. Members will bear with me, I shall return to that.
I want to comment on two issues that were raised. Both were about greater accountability. One of the outstanding issues is the accountability of the FSA to the public and consumers. A number of contributions mentioned the need for greater transparency, and the new clause reflects that. It also reflects the need for prompt action. I hope that the Minister will take those issues away with him.
I was a little less convinced by the Ministers concern about bringing rigidity into the way in which the issues are dealt with. That certainly was not the intention behind the new clause. If that is one of the concerns, I hope that consideration can be given to making the measure more flexible so that it really does respond to the issues raised by many consumer groups and organisations.
I have to return to what I think was at the centre of the Ministers concern about the new clause. He said that, if accepted, it would rank consumer protection above the other objectives of the Financial Services Authority. I accept that is an issue and that the new clause may go a little too far in pushing the boundariesperhaps naturally enough, considering that is where there are major concerns in relation to the FSA. When putting the new clause together, it certainly was not my intention to skew the balance too much in favour of the consumer, as I recognise that there are other important objectives for the FSA, but I accept that it is a concern.
There is enough concern among consumers in the financial services marketplace, and it has been somewhat heightened by the turbulence that we are experiencing in financial services markets; the recession is bringing out a number of issues that will become very important in relation to consumer redress. I therefore hope that we will not lose the measure, but I accept the Ministers plea that we may have gone too far. On that basis and on the basis that we will not forget about the consumer issues that are reflected in the new clause, I beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.

New Clause 4

Duty regarding socio-economic inequalities
(1) The Financial Services and Markets Act 2000 is amended as follows.
(2) In section 2(1) (the FSAs general duties), after paragraph (b) insert
(c) which when making decisions of a strategic nature about how to exercise its functions the Authority considers desirable so as to exercise them in a way that is designed to reduce the inequalities of outcome which result from socio-economic disadvantage..(Mr. Love.)

Brought up, and read the First time.

Andrew Love: I beg to move, That the clause be read a Second time.
I am not sure whether there is such a thing as a probing new clause, but this is an attempt to probe an issue that will be of increasing importance. New clause 4 is designed to address inequality and unfairness in financial services. It is particularly timely, as inequality and unfairness are more prevalent currently, what with the turbulence that we are going through following the credit crunch and the recession that we are suffering.
New clause 4 would introduce a new duty to tackle systemic problems of socio-economic disadvantage. I would like to pray in aid a debate that I heard this morning on the Today programme, featuring the Secretary of State for Communities and Local Government. The debate was primarily about 10 years of the Race Relations (Amendment) Act 2000, but the thrust of what the Secretary of State was saying was that, with the economic difficulties that we are facing, we will come to deal more with inequality, because that will be at the centre of our concerns. That is very much at the centre of the concerns expressed through new clause 4.
The reason why I suggested that this might be a probing new clause is that it draws on the work done in the Equality Bill, which is currently before Parliament. On Second Reading, it was illustrated just how important such a clause can be in an Act, with a number of examples being given of how such a clause might operate to protect those who suffer inequality and unfairness. If we take the example of disadvantaged communities, where smoking is much more prevalent than it is across the community at large, it could be argued that smoking-cessation programmes would be particularly appropriate, to address the significant health inequalities resulting from the high incidence of smoking in those areas.
Such clauses could deal with educational disadvantage. Many people in communities, including my constituency, feel that they do not get treated equally with regard to access to the best schools in the local education authority area. Often the problem is down to their lack of knowledge and information on how to go about the application process. One of the ways that we could reflect the provisions in such a new clause would be by ensuring that that information and support was given to the most disadvantagedto those families suffering from educational inequalityin order to give them an equal opportunity.
I do not really have rural areas in my constituency, just a few small parks, but there are areas across the country where there are low car-ownership levels and where the public transport system is rudimentary to say the least; sometimes it is non-existent. Local authorities or central Government might want to subsidise the provision of a bus or other types of transport services in order to move the balance. The arguments for addressing such socio-economic difficulties are many and strong.

Colin Breed: I listened carefully to what the hon. Gentleman said and it contained a great deal of sense. For instance, the closure of a bank branch in a relatively remote rural setting, or in a suburb of a larger city, could cause real socio-economic difficulty, financial exclusion and so on. Might the FSA have powers, if not to veto the closure, then at least to require the bank to make a good case for seeking to remove that facility?

Andrew Love: Perhaps the hon. Gentleman ought to have declared an interest, as a former bank manager, in raising that issue. He gave a good example, because there is a strong argument to be made when it can be shown that the alternative ways in which we can access services provided by a bank branchthrough the telephone, the internet and other mechanismsare not available to the community that the branch serves.
Through the new clause, we are trying to draw out the kind of situations in which it would be appropriate to take such concerns into account before a decision was made. I do not think that anyone is suggesting that we should be able to veto an organisations decision to close a branch, but we could inform that decision, so as to make sure that the widest possible worries were taken into consideration.
The issues that I have dealt with so far relate to the Equality Bill, a measure that introduces the same socio-economic duty as is suggested in new clause 4. However, that duty applies only to central and local government, and does not go any further. I tabled the probing new clause because it sets out an attempt to extend that duty to the Financial Services Authority. There is also a strong argument for extending it to all economic regulators. I believe that the subject has come up in debate; no doubt it will feature in the Committee stage discussions on the Equality Bill in the Lords. I was somewhat surprised that the FSA and other economic regulators were not included, because they would have a much greater, more direct impact on the inequality and unfairness suffered by many people in the marketplace.

Mark Hoban: I am trying to follow the hon. Gentlemans argument. Will he give us some examples of what the FSA might do in pursuit of such an objective? I can understand the allocation of, say, resources for financial education to more deprived areas; that is already envisaged in the way in which the consumer financial education body will implement the Moneymadeclear service. However, I am not sure where his proposal is heading and what he means by outcomes in the context of the financial services sector.

Andrew Love: The hon. Gentleman must have been reading my mind, as I was about to focus on that. Earlier, I focused on a wider range of services not particularly related to the FSA in order to set the backdropto explain why I tabled new clause 4 and why it is important that the socio-economic duty be extended to economic regulators. I think that that would bring a number of benefits. I shall now focus on the FSA, as requested.
The new clause will encourage the FSA to use its existing powers to focus on areas of concern to vulnerable consumers. For example, the FSA has the power to look at markets, but it often does so without considering how those markets impact on different parts of the marketplace, particularly vulnerable consumers. In the FSAs investigations into markets, much greater priority should be given to how markets impact on vulnerable and poorer sectors.
The reality is that the FSAs primary objective is consumer protection, which is often seen through the narrower lens of competition. The new duty would widen the lens so that there was an impact on the most vulnerable consumers, who lack consumer power and who are often marginalised. They are not helped by the FSAs exclusive focus on competition. I am anxious for the Minister to consider that in his response on the new clause, because of the issue of how disadvantaged consumers experience the marketplace.
For example, we all have stories of being bombarded with offers of loans and of being subject to various other kinds of blandishments from the financial services market, yet we know that there are many disadvantaged consumers who do not get those offers. They find it difficult to access credit and are forced into loans at very high rates of interest, or are forced into the illegal credit market. It is important that the FSA considers not only the more general competition issues in that sort of marketplace but the specific needs of disadvantaged consumers. That will happen only if we engage with new clause 4 and give the Financial Services Authority that socio-economic duty.
New clause 4 will also address the shortcomings in the Financial Services Authoritys conduct of business regulations. It is criticised for not placing enough emphasis on the relative disadvantage faced by vulnerable consumers. Sub-prime mortgages, for example, are mainly taken out by middle and lower-income consumer groups; very bad practices have emerged in that particular sector of the mortgage market. Take, for example, the right to buy: many people exercising that right have been sold mortgages that they simply cannot afford in the longer term. That has not been experienced particularly in the rest of the marketplace, but it is a feature among the disadvantaged groups. New clause 4 would have led the Financial Services Authority to act sooner and would have prevented many consumers from experiencing events that were to their severe detriment.
I conclude by suggesting that we need a combination of the Equality Bills provisions for central and local government and a socio-economic duty on economic regulators such as the FSA. Working together, they could have a significant impact on the experience of many disadvantaged and vulnerable consumers in the marketplace and in the provision of public services. As I say, new clause 4 does for parts of the private sector what the Equality Bill will introduce for public sector bodies.

John Howell: The hon. Gentleman has mentioned the Equality Bill on a number of occasions. I sat on the Equality Bill Committee, and I remember the discussion about the socio-economic duty. The difficulty is that that Bill deals with discrimination. The unhelpful nature of the socio-economic duty blurred the distinction between discrimination and disadvantage, with the result that it tackled neither. The disadvantage element was handled in many other ways by many other different pieces of Government legislation. Blurring the two led to feelings of confusion in the Committee on whether the duty would achieve anything.

Andrew Love: I accept that there are dangers. Indeed, the discussion on this mornings Today programme touched on a number of cases where discrimination is still very much a factor. Because of the economic circumstances, disadvantage is now coming to the fore.
The new clause may go part of the way to addressing the disadvantage element, but we should not lose our concern about discrimination. Indeed, there are many groups that would ensure that we do not lose it. Discrimination still exists for women in equal opportunities, and for ethnic minority communities. It is often the case that people who are discriminated against are also to be found among disadvantaged and vulnerable consumer groups, so it is not always easy to tell whether it is discrimination or disadvantage that is acting against them. It will often be a combination of both.
The point is valid, but I want to ensure that economic regulatorsin this instance, the Financial Services Authorityhave a duty to ensure that disadvantage is taken into account in their consideration of the reviews or actions that they are likely to take to support consumers.
I believe that by using both the Equality Bill and, if it is accepted, new clause 4, we can begin to address some of the more severe disadvantages that many vulnerable consumers face in the marketplace. I therefore commend it to the Committee.

Ian Pearson: I thank my hon. Friend for what he calls a probing new clause. Of course, the Government do not disagree with the spirit in which it has been proposed. The Government believe that tackling socio-economic inequality is of great importance. Over the past 12 years, we have demonstrated our commitment to creating a fair society with fair chances for everyone. We are proud of our record on reducing inequality, and we are putting further measures in place to deal with it.
My hon. Friend will be aware that a 2008 report by the OECD showed that income inequality and poverty fell faster in the United Kingdom than in any other OECD country between 2000 and 2005. For the first time since the 1980s, the UK poverty level is well below the OECD average. In short, the Government are, and always have been, a champion of greater equality. However, although we fully support the spirit of the clause, it is not necessary or appropriate, and I doubt whether it would in practice have the effect that my hon. Friend intends.
I shall give my reasons for reaching those conclusions. First, the services provided by the entities that the FSA regulates are, in many cases, essential to people's lives, and lack of fair access to them may well influence socio-economic outcomes. The Government believe that the best way for the FSA to contribute to tackling these issues is by focusing on its day job as a specialist financial services regulator. Overarching social issues are matters for the Government, and we are dealing with that. We are addressing socio-economic equality in financial services in other ways, too: we have a financial inclusion strategy to ensure that everyone has access to appropriate financial services.
To support that strategy, the banks have made a commitment that basic bank accounts will become universally available, which will reduce the number of adults not having access to a bank account, and to take action to support the growth and development of third-sector lenders. I applaud the work of credit unions and community development financial associations in the UK, and their valuable contribution to helping people in vulnerable circumstances.
My hon. Friend uses the term,
decisions of a strategic nature.
Under the new clause, the FSA would be required to address that through its detailed day-to-day regulation of banks. However, imposing a duty on the FSA is not the same as imposing a duty on the firms that it regulates. Extending the duty to the FSA would be effective only if we also extended statutory responsibility for tackling socio-economic inequality to private sector companies such as banks, investment firms, insurance companies and so on. That would hugely expand the nature of the duty, and we are not minded to go down that route. To improve financial inclusion, for example, we have not legislated for specific outcomes or responsibilities, but sought to take a collaborative approach to working with the financial services industry. We believe that that is bearing fruit, as shown by the recent announcement that the banks have met our shared goal of halving the number of people living in households without access to a bank account.
In addition to the points I have just made, I do not believe that reducing inequality, or pursuing other socio-economic outcomes, is an appropriate objective for the FSA or any other specialist regulator. My hon. Friend mentioned the discussions taking place on the Equality Bill. The Governments view is that regulators should not be subject to that duty, which is why they were intentionally left out of that Bill. The Committee might be aware that the Government resisted an amendment similar to the new clause during the Houses consideration of the Equality Bill for the reasons that I have outlined.
I do not believe it to be appropriate for a non-elected regulator with extensive rule-making and other compulsive powers to be given a mandate to pursue core questions of social policy, however much we might agree that such issues need to be tackled. The discretion to make rules that promote socio-economic equality should remain with democratically elected Governments, and I believe strongly that it is up to us to take decisions in those areas. I hope that my hon. Friend will be persuaded that his probing new clause is unnecessary, and that it would not be right to impose such a duty on the FSA. I also hope that he understands and supportsas I am sure he doesthe Governments commitment to promoting greater social equality in this country. I therefore hope that he feels able to withdraw his new clause.

Andrew Love: I am not surprised by the Ministers response. As I understand, a similar response was given during discussion on the Equality Bill. Although I accept the argument that it is primarily for elected bodies rather than non-elected regulators to implement such a duty, it is somewhat surprising and less than consistent to introduce it to local government, for example, where regulators such as local trading standards officers will have such a duty imposed on them, but national regulators will not. It is a somewhat inconsistent argument, but I will let that stand.
Not introducing a new clause of this nature will weaken our ability to address some of the significant disadvantages that vulnerable consumers experience. However, we must allow the Equality Bill to be enacted to see how that develops over a number of years. I hope that the Minister responsible will monitor the situation to see whether the terms of the Equality Bill rise to the needs of the most vulnerable people in our society. If not, I hope that the Government will come back to this in the future, because it is critical that we address some of these points, particularly at this difficult economic time. If we do not, the inequality and unfairness in our society will play out in a way that is not to the benefit of major sections of our community. Although I accept the Ministers argument and the Government have a good record in this regard, we need to consider these points very carefully in the future.
However, on the basis of the Ministers contribution to the debate and the argument that he made about the impact that new clause 4 would have on the FSA, I beg to ask leave to withdraw the new clause.

Clause, by leave, withdrawn.

New Clause 5

Restrictions on provision of credit limit increases
(1) A consumer credit firm which provides an increase in credit limit otherwise than in accordance with this section commits an offence.
(2) Credit limit increases may be provided only to a person who has asked to receive such an increase.
(3) This request may take the form:
(a) of a specific one-off request from a person, or
(b) of a decision by a person to opt in to being offered a limit increase.
(4) In the case of section 3(b), the consumer credit firm may offer a person a limit increase, but must gain specific approval from the person before providing this increase.
(5) In the case of section 3(b), a person may choose to opt out of receiving offers of limit increases at any time by informing the consumer credit firm, and their request must be processed with immediate effect.
(6) A consumer credit firm must undertake proper credit checks and an assessment of the persons ability to repay before offering an increase in their credit limit..(Mr. Breed.)

Brought up, and read the First time.

Colin Breed: I beg to move, That the clause be read a Second Time.
Before speaking in support of the new clause, I want to refer hon. Members back to clause 27, which we discussed earlier in our proceedings. Clause 27 restricted the provision of credit card cheques. I see new clause 5 as being complementary to clause 27.
A couple of the provisions within clause 27 are very similar to those that I am proposing in new clause 5. Clause 27(2) says:
Credit card cheques may be provided only to a person who has asked for them.
It also says:
The number of cheques provided in respect of a request must not exceed three (or, if less, the number requested).
We have been talking about consumer protection and perhaps to a certain extent this is legislation that tries to protect the consumer against themselves. That may seem a little strange. However, clause 27, which has passed our scrutiny, seeks to stop the unsolicited distribution of credit card cheques. Thousands, if not hundreds of thousands, of such cheques are distributed, but only a very small number are ever taken up and often only by people who are already in rather desperate circumstances.
As I say, new clause 5 seeks to complement clause 27 by amending the Consumer Credit Act 1974 in a similar way, to prevent unsolicited increases in credit card limits. I suspect that we may all have been subjected to such unsolicited increases at some stage. The first time that someone realises that the limit on their credit card has been increased may be the first time that they see the new limit on their credit card statement; perhaps they have not even been advised that the company has decided to increase their limit.
Unsolicited increases in credit limits can, on perhaps a relatively small number of occasions, put off the evil day, as it were, for people who are already under pressure regarding their credit card and who have not yet recognised that they have to reorder their financial affairs. Then, out of the blue, they see their credit card limit increased and bingo, the pressure is off. They can make additional borrowing on the card and relieve the immediate problem, thinkingas we all dothat that will be the last time and that they will now get to grips with everything. Of course, they are then in an even worse position than before.
New clause 5 has six subsections. Subsection (2) says:
Credit limit increases may be provided only to a person who has asked to receive such an increase.
It is rather similar to clause 27, which says that people have to ask for their credit card cheques.
Subsection (3) of new clause 5 says:
This request may take the form:
(a) of a specific one-off request from a person, or
(b) of a decision by a person to opt in to being offered a limit increase.
In other words, credit card companies may offer the opportunity to increase limits to a considerable number of customers. If such an offer is made to a particular customer, that customer or consumer specifically has to opt in. A consumer credit firm may offer someone a limit increase, but must gain specific approval from that person before providing the increase. Even if they put out a general offer, it cannot take place until the offer has been clearly taken up by the individual consumer.
Subsection (5) states that
a person may choose to opt out of receiving offers of limit increases at any time by informing the consumer credit firm, and their request must be processed.
It is rather like not wanting to receive all sorts of advertising material through the post. People should be able to say, I do not want to be continually badgered by the credit card company to increase the limit. If I require an increase, I will request it, but in the meantime please take me off your list for any further offers.
Subsection (6) states that
A consumer credit firm must undertake proper credit checks and an assessment of the persons ability to pay before offering an increase in their credit limit.
It would mean that credit firms were not able indiscriminately to send a load of unsolicited increase offers without making a proper investigation of whether individual consumers were able to make their payments. I accept that, in many respects, it would inhibit the business of credit companies, which will obviously want to increase their business. However, the potential to exploit the weaknesses of some consumers, who may already have over-borrowed, giving them the opportunity to become even more over-borrowed through the receipt of unsolicited increases in their credit card limit is something that we should seriously consider.

Mark Hoban: I sense that the hon. Gentleman may be near the end of his remarks. The approach of credit card companies in offering increases in limitsit is called low and growis to give the customer a low limit, and increase it over time as the customer demonstrates the ability to handle that level of credit. Banning unsolicited increases will mean either that fewer credit cards are issued, or that credit cards issued to new customers do not have a low limit; people will be offered a higher limit. That may not be the optimal outcome. What impact does he believe the new clause will have on those starting offers?

Colin Breed: I thank the hon. Gentleman for that intervention, as it raises some interesting points. First, a proper assessment will need to be made before a decision is made to provide a credit limit. The credit card company will have to ensure that it takes all necessary information into account in assessing the customers ability to repay. That is the essential factor. They should take account of repayments for all borrowings and the usual household bills, and of disposable income.
A proper assessment would have to be made. Deciding whether to pitch it low, and well within a persons ability to pay, or at the top of his ability to pay, would be a policy decision for the credit card company. It would be entirely up to the company if it wanted to try something out on a particular individual, on a low-and-grow basis. Whatever the limit, however, the company would have to demonstrate that the customer could pay. I see no problem with that. The only problem will be if the company assessed a limit above the customers ability to pay. That would not be appropriate.

Mark Hoban: Would the hon. Gentleman be content if someone at the credit card company said, I think that this person, based on my assessment of their credit risk, should have a credit limit of, say £5,000. Under the current regime the company might give that customer a credit limit of only £1,000 and see how the customer copes before increasing the limit in stages towards £5,000. Would the hon. Gentleman be happy to go straight to that £5,000 limit?

Colin Breed: I would only agree if that were requested. What I would not want to see is the customer being quite happy with a £1,000 limit, but then being told, Okay, were going to give you a £5,000 limit because we reckon you can afford to pay up to £5,000. The proper relationship between a customer and the provider is for the customer to seek what he or she requires. If he or she requires to go to £5,000 straight away and the assessment and ability to repay can demonstrate that such a limit would be appropriate, I do not have any qualms. Most of the time with a low and grow limit, we are already on the edge of what can be done. The aim is often to attract business. There is already a credit card balance with another company and people are trying to attract that balance, which they often do by offering interest-free periods for balance transfers and such.
I do not want to stifleif that is the right wordthe relationship between the consumer and the credit card company, but I want to restrain the unsolicited aspects and operations of the credit card companies. Many peoplethe vast majorityare quite capable of saying, Thank you very much, but I am not going to use it. I pay off my balance every month anyway, so it does not really matter whether I have a limit of £2,000, £4,000 or £10,000. However, for a significant number of peopleI have already said we should be looking at vulnerable younger people in particularthe opportunity to creep up the limit, on an unsolicited basis, is too much of a temptation, and that does not need to be part of the credit cards armoury.
My amendment is entirely complementary to clause 27, which was pretty uncontroversial, at least in Committee. If we are going to restrain the use of credit card cheques, my amendment has a similar aspect. That does not in any way stop someone from applying for an increase in their credit card limit, or the credit card company from offering a limit increase, but it would have to be based on the assessment of the customers ability to pay and, clearly, on the consumer accepting that offer themselves and not just being able to take advantage of it because it was given unsolicited.
As I said, the proposal is complementary to clause 27 and, for some people, a safeguard against their own better judgment. Citizens Advice and other bodies far too often see people who have taken advantage of unsolicited increases in their credit card limits and got themselves into more trouble. Had they been stopped or had it been prevented at a much earlier stage, their chances of getting themselves back on the straight and narrow again would be much easier.

Andrew Tyrie: I strongly agree with the hon. Gentlemans objective in the amendment. His intentions must be right. We have worked on some such issues together in the Treasury Committee. I wonder only whether there might be another route, a route through greater transparency, which we have discussed in Committee to a degree. Such transparency could be furthered by bolstering competition in the sector.

Colin Breed: I am sure that there could be. Competition in the sector is pretty fierce, hence the great offers to take balances for extended periods with no interest. There is quite a demand. If anyone goes to buy a pair of shoes somewhere, they are often harangued more about whether they would like to buy them with a store card than about the shoes themselves.

Andrew Tyrie: But is not that competition without full transparency, and without people fully realising what they are buying?

Colin Breed: The hon. Gentleman is right. We have said that there should be more health warningsif that is the right descriptionon credit card statements, particularly asking people whether they realise that, if they made the minimum payment and no other withdrawals, it would still take them 10 years to repay the balance. We should make clearer exactly what the credit card debts entail. Many of us would like to see an increase in the minimum payment and a greater explanation of the way in which interest is charged because it differs between credit companies. Some take it straight away; some take it on the last balance first basis, but for many peopleto protect them sometimes from themselveswithout huge inconvenience to anyone else, we could ask credit card companies to ensure that they do not send out unsolicited increases in credit. They can certainly offer increases, but the offers must be properly accepted by the consumer in the knowledge of what they are letting themselves in for, and there must be a proper assessment by the credit card company before any such offers are made.

Ian Pearson: The Government are concerned about the issue, which is why we are considering taking action in such areas as part of the current review of credit card and store card regulation. However, it would be inappropriate to introduce reform before the review has been completed. As the hon. Member for South-East Cornwall knows, the consultation document was published in October and the consultation period ends next week. We are consulting on a wide-ranging package of measures, including possible restrictions on unsolicited limit increases. One of the reasons that the Government introduced the review of the regulation of credit and store cards was to assess the potential impact of any changeslegislative or otherwiseto the current arrangements.
When there is evidence that industry practice is balanced against the interest of consumers, particularly the most vulnerable, the Government will take strong action, but not before we have examined the responses to the consultation. We have called on credit card companies and consumer representatives to submit evidence in support of their arguments, and we look forward to assessing what they have to say.
There was a helpful exchange between the hon. Members for Fareham and for South-East Cornwall. It showed some of the potential unintended consequences if we do not get matters right, and why we want to make sure that we examine the issue thoroughly. During the passage of the Bill, we have considered the issue of the Government making helpful nudges and trying to achieve better social outcomes through choice-editing, setting sensible defaults or, in this case, drafting legislation on limits. That is something that a Government should be considering, but we need to do it on the right evidence base.
Another point to bear in mind is that the review is looking at linked issues that bear on all aspects of store card business, namely, the allocation of customer payments, the level of minimum payments, to which the hon. Member for South-East Cornwall referred, the re-pricing of outstanding debt and the need for further information requirements, as well as unsolicited credit limits. An important aspect is to consider the linked effect of the various options being considered. To be clear, we want a consumer-friendly outcome working on the most important issues for consumers, and introducing legislation now would pre-empt the outcome of the review.
I must point out that the new clause is technically defective. It contains a number of key expressions that are not defined under the Bill. Had an amendment been inserted into the Consumer Credit Act 1974, at least the term credit limit would have been clear. The new clause is also not complete in that it does not include a consequential amendment to schedule 1, setting out the sanction in respect of the offence. None the less, the debate has been helpful. It has highlighted the fact that we are all concerned about the issue. A review is going on, and the Government will want to take action if they believe that the balance of interests is against consumers. With my comments in mind, I hope that the hon. Member for South-East Cornwall will withdraw the motion.

Colin Breed: I thank the Minister for his comments, from which I take great heart. I am minded to say that if we are waiting for the review, why have we got clause 27 in the Bill? It seems to impinge on that same review.

Ian Pearson: The issue of credit card cheques has already been consulted on. We are consulting on the issue that the hon. Gentleman raised; that is the reason.

Colin Breed: That is a very brief explanation. I see the issues as complementary in many respects. If we merely stop credit card cheques being issued, we do not really address the fundamental point, whereas the new clause does seek to address it. I accept that it would be useful to wait for the review. I hope that the required legislation will be introduced as swiftly as possible. We might see the back of the recession in the next year or two, but I suspect that its implications and effects will last for a long time and will put pressures on individuals and families. The danger of significantly increasing personal debt during a perhaps fragile economic recovery means that there could be serious social problems in the future, so I hope that when the review is done, new legislation will be introduced. On that basis, I beg to ask leave to withdraw the new clause.

Clause, by leave, withdrawn.

New Clause 6

Amendment of the Unfair Terms in Consumer Contract Regulations 1999
(1) The Unfair Terms in Consumer Contract Regulations 1999 (S.I. 1999/2083) is amended as follows.
(2) After regulation 6(1), insert
(1A) Paragraph 2 shall not apply to contracts for the supply of financial services..
(3) After regulation 6(2) insert
In so far as it is in plain and intelligible language, the assessment of a term in a contract for financial services shall not relate
(a) to the definition of the main subject matter of the contract, or
(b) to the adequacy of the main price or remuneration, as against the goods or services supplied in exchange.
(4) Where a term of a contract provides for the charging of a consumer and the circumstances in which that charge can be imposed need not arise during the term of the contract, then such price or remuneration shall not fall within the main price or remuneration for the purposes of paragraph 3.
(5) If for the purposes of paragraph 3 there is doubt about what represents the main price or remuneration, the interpretation which is most favourable to the consumer shall prevail..(Mr. Breed.)

Brought up, and read the First time.

Colin Breed: I beg to move, That the clause be read a Second time.
New clause 6 relates to a fairly topical issue, I suppose: bank charges. I do not know how many cases hon. Members have had of constituents being extremely unhappy with the bank charges that they have been subjected to. Of course, we were all enjoined to await the outcome of the Supreme Court case, and then, to utter disappointment and dismay, the banks won the day and many consumers and our constituents were extremely angry, if not disappointed.
The result of the Supreme Courts decision on bank charges has had a major effect on the publics opinion of banks and banking, just as bonuses did. The public feel that the taxpayer has bailed out the banks, while the banks have been allowed to charge unfair rates for the work that they have done. In fact, the OFT estimated that in 2006 the UK banks took £2.6 billion from their customers in unauthorised overdraft charges. Many people believe that, in many cases, those charges were disproportionate to the work involved in dealing with sometimes rather modest overdrafts. What is certain is that there has been a consumer backlash, with hundreds of thousands of people reclaiming the money that they were charged. We all know that there was a large number of cases, which, I suspect, put a particular strain on the Financial Ombudsman Service, and indeed the county courts.

Andrew Tyrie: I agree strongly, again, with the direction that the hon. Gentleman is coming from. May I raise a similar point about whether consumers know and are clear about the costs that might be incurred in taking certain actions? Do they even know, for example, what the real cost is of running a current accountof so-called free banking, which is a myth? The real cost is the gap between the amount that they are charged and the prevailing base rate, which is what the banks get. If consumers could be informed of that information in some waythere have been proposals of that typecould we not move to a position where transparency can do most of the heavy lifting?
People would be able to compete on the basis of accurate information about the relative merits of each account. Is that not exactly what happened in the insurance industry? We have now moved over to search engines that can give us detailed information about what we will really be charged for car or home insurance, for example. Is that not where we need to be with banks?

Colin Breed: I think that that is right. Transparency is a great help. As many know, I come from a banking background. Bank charges back in the 1960s and 1970s were anything but transparent. We used to decide what figure would be appropriate and charge it, and if anybody complained, we came to an agreement with them, which was not exactly good either.
Today, charges can be laid down in great reams of terms and conditions, but that is no more transparent than anything else. Seemingly every quarter or every other quarter, I get a new little booklet with new terms and conditions written in legalese. I just accept it and hope that, having banked with the same bank for nearly 50 years, I will not get done, but many people have fallen foul of the terms and conditions and been charged huge amounts of money for transgressing limits without realising that doing so would have such an effect.
As we know, the banks and the OFT agreed to a test case in the High Court to determine whether the OFT had the power to decide whether the banks terms and conditions were unfair. We were all happy to wait for the judgment, although it seemed to take an inordinately long time, because it was felt that that was ultimately the best way forward. Perhaps it would not have been the same if our provisions on collective proceedings had been passed.
The OFT has the power to assess the fairness of the terms in consumer contracts, subject to limits laid down in the Unfair Terms in Consumer Contracts Regulations 1999, statutory instrument 2083, which implemented European Council directive 93/13/EEC. Regulation 6(2) states that
the assessment of fairness of a term shall not relate...to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.
In other words, the value for money equation is excluded. The Court of Appeal held that the exclusion applied only to the core price terms of the contract, not to ancillary terms such as charges for unauthorised overdrafts and other bits and pieces. That would have allowed the OFT to assess the banks terms and conditions and decide what constitutes a fair charge for entering into an unauthorised overdraft. Many of us were not terribly surprised to hear that it might cost the bank an estimated £2 or £3 to administer an unauthorised overdraft, but some banks were charging £30 for the transgression.

Rob Marris: I must say that I am uneasy about the amendment, as it is widely drawn, but on that point, the figure of £3 compared to £30 is already covered in the law of our country. A contract can include a penalty that is not enforceable at law or a genuine pre-estimate of loss, to use the technical term, which is enforceable at law. If the banks are charging £30 for something that costs about £3, the courts would determine that to be a penalty and not enforceable. That has been the law for 100 years in this country.

Colin Breed: Although the High Court might have taken a decision along those lines, we know that that was not the ultimate interpretation of the current regulations.

Rob Marris: That is precisely the problem. The OFT case was brought under the unfair contract terms regulations; I am talking about something completely different: a basic element of contract law in England and Wales that was not ventilated at all in that court case. The court case was based on the wrong issue.

Colin Breed: That may well be the case, but that does not exclude the opportunity to change the current unfair terms of trade. We could then have a belt and braces operation, which may be a way of mitigating what many consumers feel completely sore about, perhaps including many of the hon. Gentlemans constituents. I do not know the situation in his constituency, but I had more than 50 constituents waiting with bated breath to see what was going to happen.
However, we all know that the banks appealed the High Court decision and that the Supreme Court disagreed with the Court of Appeals ruling, holding that the charges for unauthorised overdrafts fell within the exclusion. In the Supreme Court judgment, Lord Walker commented that
Ministers and Parliament had decided to transpose the directive as it stood, rather than to confer the higher degree of consumer protection afforded by the national laws of some other member states and that Parliament might wish to consider whether to revisit that decision.
We certainly could consider whether we want to revisit that decision.
Whether or not new clause 6 is the most appropriate way to address the situation, it is certainly one way to address it or to put it back to what the High Court understood it to be, as opposed to what the Supreme Court ultimately ruled it was.
I understandperhaps the Minister can confirm thisthat the normal route to achieve that change would be via the Department for Business, Innovation and Skills reissuing the unfair terms of contract regulations, which would perhaps clarify the situation. However, I understand that that is unlikely at present, as the European Union is considering a new consumer rights directive that may, in due course, amend those regulations. Nevertheless, we are concerned that no action will be taken in the UK until that happens, and there is no certainty that a new consumer rights directive will come into force, even within the next five years. Even if it does come into force, it may require amending.
I acknowledge the assistance I have received with new clause 6 from the Consumers Association, to which I gratefully pay tribute. It was extremely closely involved in the bank charges case, of course. It has also assisted in the drafting of new clause 6, which seeks to make changes to put the situation back to what it was, as the High Court wanted but the Supreme Court did not.
Of course, the great problem is that new clause 6 will not be retrospective, and I would not suggest that it should be. Nevertheless, there is a requirement on this Houseperhaps especially at this timeat least to address the situation with bank charges, which has caused so much concern, hardship, anger and frustration to so many people, and not just because of their own personal circumstances. Many people have incurred very significant bank charges, which they have found difficult to repay. Also, the situation with bank charges has contributed to the whole psyche of the British public concerning how they see the British banking system, which is a great shame. The bankers have brought some criticism on themselves because of the bonuses and the debacle of our having to bail them out. However, I thought there might have been some recognition that, even if all the money could not be paid back, we could still find a more reasonable, equitable, sensible and transparent way of dealing with bank charges.
The bank charges case has been deeply damaging to our banking industry as a whole. I do not know whether the banks themselves recognise that; perhaps they do not really care. However, it will cause lasting damage. The relationship between an individual and their bank may not be the same as that between a patient and a doctor, but there are some similarities, in the sense that people need that trust, that recognition and that hoped-for reasonable response from the other party.
For many people, the banks use of the appeal system through the Supreme Courtwhereby they avoided paying back charges that, by any measure, were extortionate in many cases and totally disproportionate in a great many othersplaced shame on the banks and our banking system. Even if new clause 6 is not accepted, it at least attempts to put back into the public arena the fact that Parliament is prepared to revisit and deal with this issue, as we have been encouraged to do, and to treat it seriously, so that we get fairness and transparency and restore some of the good name that banks in general used to have not so very long ago.

Andrew Love: I certainly echo the hon. Gentlemans comment about the damage done to our banking industry by this particular difficulty, but I understand that the banks are on record as suggesting that a change of the kind outlined in the new clause could mean the end of free bankingalthough it is not entirely freeas they introduce costs in other ways. Is he concerned that reducing the penalty or administrative charge for overdrafts would simply cause those costs to emerge in some other part of the banking industry?

Colin Breed: That has always been a danger. As the hon. Gentleman knows, I have said in the Treasury Committee that we should beware of getting what we ask for. We should recognise in creating such measures that the banks will recoup the revenue that they think they require in other ways.
At present, the system lacks complete transparency, as the hon. Member for Chichester said. So-called free banking is not transparent, in the sense that others pay the cost. Some charges peripheral to the basic terms and conditions are wholly inappropriate, and we need a whole new regime. Perhaps other aspects coming down the track will make the banks think again; that could be a danger. However, I believe that competition, if we ensure that it exists, will sort some of that out.
Until now, the banks have been able to get away with what has not been their finest hour. A recognition of what has gone on in the past, what consumers feel and the degree of transparency necessary should make them respond. However, in case they do not, the new clause is an opportunity to assure the public that Parliament takes the matter seriously.

Ian Pearson: The new clause is very clever, but it is extremely sweeping and would extend to contingent charges across the whole financial services sector. It goes well beyond bank lending, which the hon. Gentleman discussed, to include savings and investments, insurance, debit and credit cards, pensions, payment services and other consumer financial services.
The Government understand the concerns of consumers affected by the Supreme Court judgment, and I appreciate how the hon. Gentleman has raised the new clause, but as he will be aware, we have announced that we will work with the Office of Fair Trading, consumer groups and the banks to agree a fairer, simpler and more transparent system of bank charges in future. We have not ruled out further measures if a voluntary approach does not produce results.
I would expect that if no voluntary approach is successfully implemented, a Government would want to take action. However, a voluntary solution has the advantage that it can quickly adapt to changes in the market. Any regulatory solution will need to be carefully thought through. We must maintain price competition and avoid unintended consequences from firms deciding to compensate for any revenue reduction by developing new forms of charge.
The hon. Gentleman mentioned the Unfair Terms in Consumer Contracts Regulations 1999 as a vehicle for any necessary amendments if we chose to go down the legislative route. I am advised that as it would be a major step, any such amendment would be likely to require primary legislation. That is something to be considered. However, we strongly take the view that a voluntary approach is likely to be more speedy, and we hope that it will have the impact that we want, so that consumers get a fair deal.
The hon. Gentleman also spoke of proposed changes under the consumer rights directive. That may be a suitable vehicle for future reforms, but that will depend on the progress with that directive. He will be aware that it has been under discussion in Europe for some time.
On the wider point, with regard to what the new clause proposes for all financial sectors, I am not convinced that a case has been made. We should not lightly intervene in commercial decision making in a competitive market. It has been the long-standing policy of successive Governments that we should rely on competition to make markets fair. It is a fundamental tenet of this Governments thinking that we should intervene only if there is a demonstrable market failure that cannot be fixed by other means.
The new clause would have far-reaching and possibly unintended consequences. As well as carefully considering all the options, we would want to ensure that a full consultation with interested stakeholders took place before we considered the introduction of price regulation. In effect, the hon. Gentleman is asking the Government to get involved with price regulation across the financial services sector in the area in question. We want to take action in response to the Supreme Court case, but we seek to do it on a voluntary basis. We have not ruled out taking legislative action, but we should not have such a wide-ranging power, as it could have unintended consequences that have not been considered. With those assurances, I hope that the hon. Gentleman will seek leave to withdraw the new clause.

Colin Breed: I thank the Minister for those remarks. I entirely agree that a voluntary arrangement would be swifter and more satisfactory. However, consider what has gone on in respect of the appeal, and what has happened since. I have heard nothing from the banks, individually or collectively, to indicate that they have any intention of voluntarily giving up billions of pounds of revenue. I suspect that Parliament would need to make it clear that unless satisfactory arrangements were reached voluntarily, we would certainly legislate. That might give them a nudge in the right direction.
I entirely agree about competition. It is patently obvious from constituents letters that remarkably similar chargesall of them hugely disproportionate to the underlying costhave been applied by different banks for the same sorts of facilities. To say that that was an absolutely competitive situation is misleading; it clearly was not. The banks were charging what they could get away with, because the customer did not have the opportunity of going to another bank with a lesser charge, and anyway, they would have had all the inconvenience of changing banks. Whether it was HSBC, NatWest, Lloyds or the Royal Bank of Scotland, the underlying charges for unauthorised overdrafts bore a remarkable similarity. The greatest similarity, however, is that they were hugely disproportionate to the underlying cost.
The Minister said that the new clause is widely drawn and covers all sorts. Frankly, I do not think that anyone should get away with unfair charges. I do not care whether a company is an insurance company, a credit card company or any other company in the financial sector; their charges should be fair and transparent. I have no problem with the new clause being wide-ranging. It is to do with unfair charges, and I do not want to see unfair charges anywhere. However, I accept the point about consultation. If the Government are seizing the initiative on the subject by taking the matter to the banks and seeking voluntary arrangements, perhaps that, together with the threat of appropriate legislation if the banks do not come forward with something sensible and transparent, is the way forward.
I am happy at this stage to seek leave to withdraw the new clause. I want to reflect on what the Minister has said about dealing with the issue, and I reserve the right to come back to it at a later stage. However, at this time, I beg to ask leave to withdraw the new clause.

Clause, by leave, withdrawn.

New Clause 7

Removal of reduction of financial crime as an FSA regulatory objective
(1) The Financial Services and Markets Act 2000 is amended as follows.
(2) In section 2(2) (the FSAs regulatory objectives) omit paragraph (d) (which provides for the reduction in financial crime to be one of its objectives).
(3) Omit Section 6 (the reduction of financial crime)..(Mr. Hoban.)

Brought up, and read the First time.

Mark Hoban: I beg to move, That the clause be read a Second time.
New clause 7 is very much a probing measure. I am just trying to tease out from the Minister what he sees as the FSAs remit on financial crime and what the impact has been of giving the FSA this objectivethe reduction of financial crimein FSMA.
In the last year or so, a degree of concern has been expressed about how we tackle financial crime and about the fact that there is a multiplicity of organisations involved in tackling it. We have the Serious Fraud Office and the City of London police. There is a suggestion that adding to this confusion is the FSAs own role in dealing with financial crime. I wondered if there is a way of streamlining the system to make it clearer who is responsible for dealing with financial crime. That led me to think about the role that the FSA plays in tackling financial crime and what sort of powers it has to do so.
On a number of occasions during our deliberations on the Bill in this Committee, we have discussed the FSAs role in terms of enforcement. Some people might say that its role is about tackling financial crime, but I see it in a different way. I think that it is primarily about trying to enforce its own rules. The FSAs enforcement division investigates breaches or potential breaches of the FSAs rules; it brings cases against firms, and it comes up with penalties that could be applied if there was a breach of the rules. Of course, the FSA also has a role in dealing with criminality, in that it prosecutes for market abuse. We have seen that relatively recently in a case involving a former employee of a company called Evolution.
My view is that if we removed the objective for reducing financial crime from FSMA, it certainly would not stop the FSA from enforcement activity. In a way, that enforcement activity takes place under the FSAs remit on consumer protection and market confidence.
So, is the objective of reducing financial crime giving any additionality? Is it taking the FSA beyond its role? Is it giving the FSA a duty to do something that it would not otherwise do? I am not clear that that objective is giving the FSA anything additional to do and therefore it may serve to confuse, rather than clarify, the FSA.
The objective in FSMA defines the FSAs role in reducing financial crime as:
reducing the extent to which it is possible for a business...to be used for a purpose connected with financial crime.
That means, in practice, that the FSA must consider whether a firm is taking appropriate measures and has appropriate resources to detect and prevent financial crime. Clearly, there is always a risk with financial services businesses of financial crime. That is why we have money-laundering regulations in place. Some people seek to use financial services businesses as a route to channel proceeds of crime and various measures have been taken in recent years to tighten up the rules to deal with money-laundering.
Of course, the Treasury has given the FSA the lead role in tackling financial crime. Given that the rules on money-laundering can also be related back to consumer protection and market confidence, I am not sure that removing the financial crime objective would reduce the FSAs scope of activity. I mentioned earlier that taking appropriate measures and having adequate resources to detect and prevent financial crime is part of the FSAs assessment of a firms suitability. The FSA looks at systems and procedures. It certainly would not be interested in authorising a firm whose systems were open to abuse or gave rise to the possibility of financial crime. Again, in its work to examine the individuals employed by firms, if the FSA is interested in employees probity, it seems that that would happen even if the financial crime objective were removed from the FSA.
I am trying to probe what the objective enables the FSA to do that it would not do if the duty were not in the Bill. Removing the duty from FSMA might give greater clarity about who is responsible for tackling financial crime.

Ian Pearson: The hon. Member for Fareham started by saying that the new clause was a probing amendment, but went on to sound as though he really meant it and wanted it to be passed. I will explain to the Committee why I think that that would not be a good idea.
Tackling or preventing all financial crime is not a stand-alone objective for the FSA or other regulators and supervisors around the world; it interacts with the FSAs other objectives of protecting consumers and market confidence and stability. That can be seen in the precise wording of section 6 of FSMA which defines the FSAs objective as
reducing the extent to which it is possible for a business carried on by a regulated person...to be used for a purpose connected with financial crime.
Financial crime includes any offence involving money laundering, fraud or dishonesty or market abuse.
In practice, as the hon. Gentleman knows, the FSA has focused its financial crime work on three key areas: businesses systems and controls for addressing financial crime risk, businesses management and personnel and the effectiveness of enforcement and sanctions. It tackles financial crime such as market abuse and money laundering, works with others where appropriate on issues such as fraud and addresses threats posed by unregulated activities such as boiler rooms.
The Government recognise and value the FSAs important achievements in shaping domestic efforts and contributing to international policy to address financial crime. At a global level, we place continued importance on intensifying efforts to strengthen work on financial crime, including action against money laundering and terrorist financing. Those efforts are seen as reinforcing wider initiatives focusing on prudential regulation and market stability. The April 2009 statement of G7 Finance Ministers and central bank governors stressed the importance of tackling financial crime.
The new clause would eliminate the overarching objective. However, the hon. Gentleman is right to say that that would not prevent the FSA from doing work on the issue. It would continue to exercise specific functions to tackle financial crime, such as supervising financial firms for compliance with money laundering regulations, by virtue of explicit powers in the regulations. Also, of course, it would still be charged with consumer protection and prudential regulation, which includes ensuring that firms protect themselves. Section 354 of FSMA would remain in force, requiring the FSA to co-operate with the police and other domestic and international agencies to tackle financial crime.
The issue, as the hon. Gentleman said, is whether removing the objective would serve any purpose. It is the Governments view that abolishing that FSA responsibility would cause confusion and uncertainty, rather than otherwise as he implied. Presumably firms would still be expected to take the issues seriously and to take steps to protect themselves and their consumers against financial crime, even if the objective was removed. I do not think the hon. Gentleman would expect a different body to assume the functions of ensuring that authorised firms use their risk controls and other processes to protect themselves and their customers. There is no obvious replacement for the FSA in such respects. Someone will need to perform the role, and it would only lead to a duplication of costs on firms and consumers if another body had to have responsibility in that area.
I would also be concerned if we were to take the objective away from the FSA, in case that implied a downgrading in the importance of financial crime, which would detract from and undermine our wider efforts to bolster risk management practices and overall market integrity in general. Therefore, I do not think the new clause is a good idea. I am happy to put on record some of the details of how the FSA has focused its work, but its statutory responsibility is there for a purpose, which is an important one, and I think it should remain.

Mark Hoban: I am sorry if I sounded too confident in my arguments earlier. I shall try to adopt a more probing tone of voice in future, if that helps. Although I may even have persuaded myself as I was talkingperhaps I should not have suggested the amendment was probing but have gone straight for the jugular.
During the course of a brief debate, it was clear to me, as in our other debates about the FSAs objectives, that their presence or absence does not seem to do a great deal to change the fundamental focus of the FSA. There is always a rationale to be deployed for maintaining its work in a particular area even if the objective did not exist. We talked about that in the context of the duty to promote international co-operation earlier. The Minister said that the FSA works internationally to tackle financial crime, but when I tried to broaden the international co-operation objective, to include the FSAs other objectives, the Minister said that that was not necessary. Sometimes the objectives are convenient in an Act, but their presence or absence does not necessarily vary what the FSA will do. Even without the objective, as the Minister said, the FSA would continue to work on money laundering, continue to look at systems and management and continue to enforce those rules. That casts light on just how important objectives are in determining regulators activity.
I have not persuaded myself that I should press the new clause to a voteit is still probing. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 9

Maintenance of competition
(1) The Financial Services and Markets Act 2000 is amended as follows.
(2) In section 2(2) (the FSAs regulatory objectives), add a new paragraph
(e) the maintenance of competition..
(3) In section 2(3), omit paragraphs (f) and (g).
(4) After section 2, add a new section
Maintenance of competition
(1) The maintenance of competition objective referred to in section 2(2)(e) is: regulating in a way which facilitates competition in financial services and markets in the United Kingdom between those who are subject to any form of regulation by the Authority or those in any category of authorised participants, and in a way which minimises the adverse effect on competition that may arise from anything done in the discharge of the Authoritys general functions.
(2) This section and section 2(2)(e) are without prejudice to the statutory powers of the Office of Fair Trading and the Competition Commission..(Mr. Tyrie.)

Brought up, and read the First time.

Andrew Tyrie: I beg to move that the clause be read a Second time.
My new clause would add competition to the objectives of the FSA. This issue is crucial. Competition is what should lie at the heart of an attempt to regulate an industryany industryand it is deeply regrettable that it does not do so in the Financial Services and Markets Act 2000. We must always remember that all regulation costs money. It raises prices for the consumer. In the end, the consumer always pays.
The present objectives already interact with one another. The clause will alter the interaction. Two fundamental issues, which I want to discuss this afternoon, flow from the FSA implementing its objectives. The first is conduct of business regulation. This is designed to stop the consumer being ripped offit is as straightforward as that. An analogy can be drawn with a can of soup: regulation about a can of soup is designed to stop people, when buying a can of soup, finding themselves being poisoned by what is in it. Once the minimum standards have been met, competition can take place between cans of soup in supermarkets and elsewhere. That is what the consumer protection objective is designed to accomplish in a much more complicated area than the regulation of cans of soup.
The second area in which such interactions will take place as a consequence of what I am proposing here is the regulation of systemic risk, an issue that we discussed earlierpreventing contagion as a consequence of illiquidity or insolvency. That is the financial stability objective, which we will now have in the Billmercifullybut none the less 10 years too late.
I shall take each issue in turn, brieflyperhaps not so briefly. Let us look first at the conduct of business regulation side. As the Bill is drafted, the consumer must rely for his protection from ever-rising prices caused by regulation on the principles underlying the FSAs objectives, to which the FSA need only have regard. There are a couple of important objectives in section 2(3) of the Act, the last being the principle in paragraph (g):
In discharging its general functions the Authority must have regard to...the desirability of facilitating competition between those who are subject to any form of regulation by the Authority.
Paragraph (d), which I might come back to in a moment, is also relevant and says that the FSA must also have regard to
the desirability of facilitating innovation in connection with regulated activities.
The reason I dwelt on that for some time is of course because a principle to which one has to have regard is very different for an institution and far less powerful than is an objectivecentral objectives that are laid out statutorily for the institution to accomplish. That is why in my view, right from the start, the Financial Services and Markets Act has been inadequate in that respect. When the Bill was put on the statute book, that was the view of the overwhelming majority of practitioners. If you ask them now, they shuffle their feet a little. Why? Because regulation is the best barrier to entry for competition. A firm could not wish for better than to have huge amounts of regulation to stop new entrants into the market.
Regulation, especially to protect consumers, is inevitably highly complex in such a field and only firms with big compliance departments can handle it properly. There are large economies of scale in regulation. The bigger the volume of deals, the cheaper per deal to regulate they will be for those firms. That should, in theory, lead to a drive for consolidation in the industries providing financial services, to retail customers in particular, and, hey presto, in practice, if we look about, that is exactly what we have seen since the Act came into force.
Worse still, the regulator himself has an interest in encouraging the same consolidation. A small number of large firms is much easier to regulate and to keep an eye on than a large number of small firms. Regulators do not like taking risks. The most important risk that regulators take is being blamed, which is extremely damagingbetter more regulation than blame falling on them. Of course, zero regulatory failure is completely unachievable. There was little crime in eastern Europeexcept crime by the statewith no crime on the street and people able to leave their doors open in many countries, particularly in East Germany. However, the level of regulation to achieve that was extremely high, with 10 per cent. of the population being informants for the Stasi. We know that we can eliminate all regulatory risk and failure but only at a price, a huge price, for our consumers.
I have seen the effect in action. As a director and chairman of audit in a publicly quoted company in the financial services industry, I have seen the effect of regulation threatening to become a barrier to entry. I have seen how encouragement for rationalisation all too often can come from the regulator itself, more in its own interest than in that of the consumers. Far too little attention is paid to the barriers to entry for small firms that can be created by that consolidation, which, in turn, is driven by the regulation.

Colin Breed: I agree entirely with what the hon. Gentleman says. Is it not a matter not only of regulation, but of proportionate regulation? To encourage new entrants in, they ought not to be sometimes subjected to the sort of regulation that is required for a highly sophisticated, complex, huge operation. Proportionate regulation would recognises the relative size and allow entrants in at the bottom end in a much more reasonable way.

Andrew Tyrie: I absolutely agree with that but, best of all, is competition. It will always act as a counterweight to excessive regulation. Competition should, in principle, provide us with the optimum level of regulation. If we have no regulation, we will have no industry to regulate. The size of the industry will be very small. People do not want to deal in a jungle. They will move into a market where they can receive some protection. However, too much protection can have the deleterious effect, as I have described, of killing off activity. In between lies the optimum level of regulation, normally the level that provides for the maximum level of legally conducted business activity. That is not the level at which we will get zero regulatory risk and we will therefore always have regulatory failure. It is the pressure that builds up on any regulator to clamp down excessively that is the great danger in regulation and financial services.

Andrew Love: Does the hon. Gentleman recognise any limitation on the role of competition, and an enhanced role for regulation? I take the example of home credit of which the Office of Fair Trading carried out a study. It wished to introduce greater competition into the marketplace, but found it difficult to find market participants who were willing to enter that market. Therefore, there is a continuing role for regulationI agree with the hon. Gentleman, at an optimum levelbut we cannot always depend on competition.

Andrew Tyrie: I completely agree with the hon. Gentleman that a level of regulation is required to arrive at an optimum level of business activity and benefit to the consumer. I hope that I just said that, but if I did not, I confirm it now. Home credit is a fascinating case of a market distortion. We have both looked into it. It is difficult to see an easy method of eliminating it wholly. However, I will not be drawn down that road into such a specific and detailed example now, even though it is deeply relevant to the new clause.
I want to make one more general point about the importance of competition in assisting consumers. I did an economics degree of sorts and, on a good dayquietly, usually in a Committee Room upstairs where no one noticesI might even be prepared to admit it. I did at least learn a lesson of Schumpeter, whose contribution was decisive on the issue. He showed that the greatest source of competition generally comes not directly from price, but from the invention of new products or product improvement that displaces inferior products in the market on a dynamic and constantly evolving basis. That is as true in services as it is in goods. It is what he called the process of creative destruction, and it is what we must maintain in financial services. We need more of it there, but our central difficulty is that there is a strong case for saying that that Schumpeterian power of creative destruction has been compromised in some respects by a distorted regulatory regime.

Colin Breed: Does the hon. Gentleman consider the introduction of the innovative product of a 125 per cent. mortgage to be a good way of providing competition in the market?

Andrew Tyrie: The hon. Gentleman makes a very good point. If the consumer can be brought to understand clearly and transparently what he is really taking on, we must ultimately let the market decide the level of activity that will take place in that area. In the case of those mortgages, we know from survey evidence that people did not know what they were taking on. They were misinformed. That is the central weakness in what happened.
It is impossible to protect people entirely from mistakes that they themselves will make. However careful the preparation, there will always be people who do not take advantage of the information provided to them to make good decisions, just as there will be people who open a can of soup, pollute it with salmonella or something before they drink it, and then blame the producer of the soup.
I agree that producing 125 per cent. mortgages was highly irresponsible. They should have had powerful health warnings on them. There might have been a case for going further and curbing themindeed, that is the road that we have gone down. There might have been a case for doing so much earlier than we did. However, we cannot live in a world where, every time a product is produced, we must rely on the FSA to put it through a detailed vetting system before it can be allowed on to the market as something that has been duly approved and sanitised. Such products are not like new pharmaceuticals. The level of innovation takes place at a much faster speed.

Mark Hoban: Will my hon. Friend give way?

Andrew Tyrie: Yes, at the risk of being diverted.

Mark Hoban: I have followed my hon. Friends argument. He talked about the creative destruction that emerges from new products appearing on the market. It is helpful for a consumer to be able to judge the characteristics of different products so that they can decide whether a new, innovative product is better than the old, stale product. Part of the challenge in financial services is that it can be difficult for consumers to see through the products and understand their characteristics. It is often hard to see the consequences of buying one product compared with another until many years have passed since the original decision to purchase was made. There are, therefore, challenges around simply relying on competition to generate the best deal for consumers.

Andrew Tyrie: I agree with every single word of that. The next paragraph of what I have in front of me alludes to that, as a qualification to my earlier remarks about the primacy of competition. I fully endorse what my hon. Friend has just said.
May I go back to the main theme, which is that we need to put competition up the scale of importance for the FSA? I referred to the number of people who have supported, and continue to support, that idea. I said a moment ago that practitioners liked the idea in theory, until they realised the benefits of the protection that comes with economies of scale and the growth of barriers to entry. However, other people who have looked at the issue have been very clearly in favour of adding competition as an objective.
Don Cruickshank, who did the original work at the time of the first Bill, said:
Getting the regulators primary statutory duties right is essential...A competition objective that is weak relative to the regulators other objectives is unlikely to be delivered effectively.
He was supported in all that by the British Bankers Association, the Association of British Insurers, the National Consumer Council, the Treasury Committee, the Conservative party, the Liberal partyI thinkand so on. They are the only bodies that I have taken the trouble to look up recently. A good number of them have carried on saying that sort of thing, to a greater or lesser degree. In the US, the Securities and Exchange Commission has a duty to consider whether any regulation or other action will promote competition, so the United States has exactly what I am asking for in its statute book.
The Governments only substantive argument against the proposal over the yearsI expect we will hear a variation of it from the Ministeris that it could lead the FSA into conflict with other parts of competition policy, in this case with the OFT. However, as I have repeatedly said, that need not be the case. My contention is not that the FSA should take on new powers to supervise competition, but that in the exercise of its powers it should not damage competition in the marketplace. The inclusion of a balancing objective, such as that in new clause 9, would not turn the FSA into another competition regulator. It would merely mean that, in carrying out its distinct remit, it should seek to facilitate competition.
New clause 9 should arm the OFT a little, not get in its way. One thing that it certainly cannot do is weaken it. To ensure that, I withdrew new clause 8that may have been noticed by Ministersbecause I wanted to add a rider at the end of subsection (4) to make it clear that my proposed provisions are
without prejudice to the statutory powers of the Office of Fair Trading and the Competition Commission.
So this can only benefit rather than damage the OFT and competition more widely.
The fact that other regulators have competition as a central objective makes its omission from FSMA particularly curious. We now have an opportunity to put that right. My new clause would have three or four big effects. First, competition would act as a counterweight to the inevitable urge to over-regulate. It would be a counter-balancing force for the FSA to consider in discharging its statutory responsibilities. There is a provision in the Act for cost-benefit analysis, but it is well understood and agreed that doing that kind of analysis is complicated, extremely expensive and give, at best, patchy results. The analysis is an expensive surrogate for what should be included, namely the balance between competition and consumer protection, which should be built into the legislations objectives for the benefit of the consumer.
On the conduct of business side, when the FSA found that it did not have competition as an objective 10 years ago, even though it wanted it, it tried, to its credit, to make the best of it by ensuring that it did not regulate excessively. I will not go into detail about how it achieved that, but it did it through a number of interesting consultation documents during the first half of the last decade. They were not all perfect, but they largely addressed in an ad hoc way the issue that I am trying to address directly through new clause 9.
The problem for the FSA is that it remains vulnerable to public pressure. Such pressure on a particular case has a ratchet effect on regulation, which leads to an erosion of competition and leads eventually to higher prices, often without any benefit to the consumer. I hope that what I am proposing will address that.
The second effect, which I want to mention briefly, touching on something that I mentioned earlier, is that the measure will change the terms of trade between the OFT and the FSA, just a little. Again, to the credit of both institutions, they know that they have to work together, and at the moment they are co-operating extremely well, through early and direct engagement.
The two organisations have produced an interesting document on exactly that subjecta memorandum of understanding. I hope that the Committee will understand my scepticism about such documents. We have been there before, have we not, with the MOU on the tripartite committee? Relying upon what is effectively an informal document is not enough. We should go further, working out ourselves how they should co-operate. We should not have to rely on a memorandum of understanding, as it makes us very dependent on the quality and personal relationships of the people whom we are appointing at the top of those institutions.
We have had a first-rate group of people running the FSA from the beginning. That has not always been the view of the press, however, nor is it the prevailing mantra. None the less, I believe that we have been lucky in those who have been appointed to the FSA. I congratulate the Government on having made a big effort to get good people to run it. I also congratulate the Government I do not often do soon their appointment of the current head of the OFT. We have very good people in place, and they are sensibly working closely together, but we should not be entirely dependent on that always being the case. We need something that has some statutory underpinning.
Of course, it should be borne in mind that the relationship between the FSA and the OFT already has a statutory basis, so the principle that legislation should act in this area has been conceded. Section 160 of the Financial Services and Markets Act 2000 gives the OFT the power to review the FSA rules for competition purposes. Sections 303 and 304 require the OFT to give the Treasury advice before bodies such as clearing houses can be approved by the FSA.
The OFT has also been given a specific statutory role to keep an eye on the competition aspects of access to payment services. So the principle is conceded; it is only a question of whether we make it a more broad-based power. New clause 9 would do exactly that. It would give wider effect to the responsibilities of the FSA in the field of competition, and it would give the FSA a wider interest in working closely with the OFT to ensure that it is accomplished.
I said that there were three or four effects. The third flows from the first two. The first was that it would act as a counterweight to the ratchet; the second was that it would strengthen the relationship with the OFT. The third effect would be that consumers will benefit. In the long run, I have no doubt that we would have nudged regulation in the direction of enabling more competition, better products, and hopefully lower costs than would otherwise be the case.
We must never forget that in creating these institutions we are creating big, powerful vested interests. Firms like certainty from the FSA; and, of course, they dislike competitors. If it could, the FSA would want to avoid any regulatory failure. There is always the risk that its efforts in that direction would be at the expense of the consumer. It is only by exercising considerable restraint that have we not found ourselves in that position. Under the new clause, there would be a counterweight, at least, a little more of one than we have had so far.
They have been touched upon today, but I shall draw out a little more what the effects would be in practice. Let us take a lively, specific casebank charges, which have been discussed. Until recently, they have been self-regulated under the banking standards code, but we all know that that has not worked very well, and we have just heard from members of the Committee some descriptions of how it has not been working well. The FSA tells us, and I believe it, that it will now be more assertive in this area. It has limited power to deal with complaints, and I hope it will be more responsive to those complaints, but, of course, most bank charges relate to overdraftsa form of consumer credit that is self-regulated under the Consumer Credit Act 2006, rather than FSMA.
The new clause would not provide a direct regulatory solution to those problems of bank charges. That said, the operation of the non-borrowing aspects of current accounts and complaint handling by banks in relation to overdrafts is subject to FSA oversight and acquiring the competition objectives would be a powerful spur to the FSA to work closely with the Office of Fair Trading to address those problems.
A solution to much of the abuse in relation to bank charges is probably available, at least in principle. I believe that transparency would do a lot of the heavy lifting, but so far none of the existing regulators has been able to force the banks to provide it. As the hon. Member for South-East Cornwall said a moment ago, those reams of terms and conditions often make things even more opaque and difficult for consumers, rather than simpler.
In an intervention on the hon. Gentleman, I mentioned a proposal, which I published some time ago through the Centre for Policy Studies, that bank charges should be identified on regular statements as the difference between base rates and the interest being earned by the consumer on that account, and that that should score as a charge. If that proposal were implemented, the consumer would see very clearly that there is no such thing as free banking. The market for short rates is heavily distorted at the moment and the proposal would not work so effectively in this extremely unusual climate, but it would most of the time.
Why have those regulators been unable to provide any real pressure on transparency? Because so much of what is required in bank regulation falls between the cracks of various legislation. I am not suggesting that what I am proposing today will fill every crack, but I do suggest that a competition objective on the FSA would give it the incentive to engage directly and thoroughly with the OFT to try to address and solve the problem.
I ought to say a little about the other main aspect of the interaction of the objectives that I discussed at the start of my speech. I said that there were two main areas: systemic risk and conduct of business regulation. I have been discussing conduct of business regulation. Now I want to say a few words about the systemic risk aspects.
A central issue since the Governments HBOS intervention is the creation and establishment of a powerful precedent whereby the financial stability objective it is now in the Billcould trump the competition objective, or indeed any of the other objectives. I should refer for now to the competition principles, because there will not be a competition objective until the Government accept my measure, which I am sure they will eventually.
The interesting aspect of this is that, when one thinks it through carefully, one has to agree that, in extreme circumstances, one must accept that there should be such an override. There must be circumstances in which the systemic risk is so fundamental that all other objectives become secondary, but we should not forget, when we allow that to take place, that the consumer will always pay for any loss of competition as a result, and he needs to be given protection from exploitation down the line by others. In the HBOS example, exploitation can all too easily occur as a consequence of Government actionindeed, effectively by the Governmentalbeit, quite reasonably, during their efforts to address a systemic problem.
Let me discuss the HBOS case. HBOS was going bust and the Government were extremely worried about the implications of its failure for the financial system as a whole. The Prime Minister sidled up to Sir Victor Blank and said, Would you please take HBOS off our hands? I was not there but I can confidently assert that that must have been the sub-text. Secondly, he would have said, If you do this, you will be doing a great public service. Eric Daniels, who gave evidence to the Treasury Committee earlier this week, effectively confirmed that, when he said that the deal was partly motivated by public interest, which I find quite astonishing. I would certainly find that astonishing if I were a Lloyds shareholder.
The third thing that the Prime Minister might have said, but probably hinted, was, You can buy it on the cheap and, if it turns out that the true value is negativebecause you have picked up so much in toxic assets that the positive value of some of the assets is outweighed by the rubbish that has now ended up on your balance sheetdont worry too much, Sir Victor. We have a solution. The Government will give you a waiver to the provisions of competition law, enabling you to acquire disproportionately large stakes in several markets. The implication, of course, was that Lloyds shareholders would have an opportunity to recoup losses by benefiting from the diminished competition for some of their key products in several markets. Among those, post the merger, are building society loans and retail bank accounts. That is exactly where we are now. Indeed, the merger gives the new bank between 30 and 40 per cent. of market share in certain areas, which I have absolutely no doubt the OFT would more than raise an eyebrow about.
The implications of this deal in the long run for competition in the financial sector are extremely worrying. The Government have now used their override, somewhat like the override provided to the Treasury in the legislation creating the independent Bank of England. Once one has fired the shot, one has changed things quite a bit. In the case of the interest rate override, one would have changed things fundamentally and destroyed the Bank of Englandit is a nuclear weapon. In this case, it may be just short of a nuclear weapon but it is still very powerful. Whatever the Governments protestations to the contrary, the effectiveness of competition policy and the OFT has been, at least for a time, prejudiced by the HBOS-Lloyds competition waiver.
Worse still, and this worries me a good dealI do not think it is unique to Labour Ministers, although it may be the ideology, if there is one these days; the motivation of Labour Ministers tends to be stronger than Conservative ones in this fieldonce Ministers get an appetite for intervention, they tend to do more.
Only yesterday, Lord Mandelson took advantage of a meeting with institutional investors to meddle with the Kraft-Cadbury merger. What worries me is that those incidents are no longer isolated. In the Bradford & Bingley-Santander merger, a statutory instrument was used to disapply the merger control provisions of the Enterprise Act 2002 altogether. As it turned out, that did not make much difference because the merger met the EU merger regulations threshold and was therefore examined by the European Commission.
Another example is the stipulation by United Kingdom Financial Investments Ltd and the UK Government that any assets that may be sold by Lloyds and HBOS are not permitted to generate a post-acquisition combined market share with the purchaser of more than 15 per cent. Of course, the principle is right that those companies should not have a large market share, but I thought that that was what merger control policy had been put on to the statute book to address. That does not seem to be something that should be addressed, directly or indirectly, by the Government.
This is why a final reason for giving the FSA oversight of competition at the level of its objectives, which is the effect of new clause 9, is that it could help the OFT to handle Government intervention in the field. The OFT would work more closely with the FSA on the issue, and the effect on the regulatory structure would be such that, if the Government tried to intervene, they would face not one but two quite powerful institutions.
One of the better aspects of the Governments new competition policy was that they said that they would completely depoliticise the issue. I would find it very concerning if, as a consequence of this crisis, we found the reassertion of a form of what used to be called an industrial policy in the financial services sector by the back door.
I recognise that the Government will not agree to my new clause nowI can tell that just by looking at the Minister, who is a happy man and is smiling amiably at me as I speakbut I ask him at least to agree to think about it carefully between now and the debate on Report for this reason: I have talked politics for the last few paragraphs, and the truth is that, one way or another, the Conservatives will give greater emphasis to competition when we reform financial regulation. According to the polls, that will occur in a few months. Perhaps those polls are wrong, and it may happen in a few years, but either way, it will definitely happen, and I am confident that competition will be given greater emphasis.
If the Minister is prepared to give some further thought to the new clause now, to consult the OFT, FSA and others and to return with a proposal on Report, he will do the right thing not only for the financial sector, but for the cause of working together and forming a consensus on such an important issue.

Mark Hoban: I could not resist taking part, given the closing paragraphs of the thoughtful speech made by my hon. Friend the Member for Chichester. He is right to say that competition should play an increasingly important role in how we deal with the financial services sector. Competition in the banking sector has reduced during the past 18 months or so. My hon. Friend referred to the acquisition of HBOS by Lloyds, but overseas banks have left the banking market that had hitherto operated in the retail or commercial sectors. The number of building societies that operate in the UK has reduced because of a series of mergers or takeovers.
The reality is that there is an increased risk that consumers will have a poorer deal if there are fewer players in the market. We want consumers to have a better outcome. I am sure that hon. Members on both sides of the Committee recognise that regulation in itself is not sufficient to deliver the best outcome for consumers. A market can be well regulated, but if only one product is provided, the chances are that consumers will get a poorer deal, as a consequence of only one player being in the market.
We need to address some challenges in considering the role played by competition in financial services. I intervened on my hon. Friend and mentioned the complexity of the products in the financial services sector. That clearly has a bearing on how transparent choice is for consumers and whether they can assess which products offer good value for money.
There are areas where regulation has enhanced the ability for competition to take place. I shall give the Committee two examples. There is huge competition between insurers in the motor insurance market, partly because consumers can chose reasonably well between different products, given that the product specification at the heart of motor insurance is common to all products. When people decide whether to take out a Direct Line or a Privilege policy, they know that either third party, fire and theft or comprehensive cover will lie at the heart of the policy that they buy, and they are therefore better able to exercise choice.
One of the challenges in introducing competition into retail financial services is to ensure that consumers can make an informed choice. Our white paper on financial regulation suggested ways to increase competition in the marketplacefor example, by analysing the data that mortgage companies or banks provide on their charges and enabling those data to be used in a common framework to assess which is the best bank account or which is the best market. So we can take steps to improve competition.
Whether a market is well regulated has an impact on competition, too. The first debate that I took part in as a Front-Bench member of our Treasury team was on equity release products. The market had moved from one that was relatively lightly regulated to a more tightly regulated one. That transition in regulation introduced new competitors to the market, so there was greater innovation in products and more choice for consumers. The cost to the consumer of those products reduced, because more household names participated in that marketplace. Those people only entered the market because they felt that their reputation was not at risk, as the market was better regulated. So we need to consider some important dynamics in looking at the role that competition can play in improving outcomes for consumers.

Andrew Love: I agree with quite a lot of the thrust of the hon. Gentlemans argument, but parts of the marketplace resist easy solutions. Look at the banking charges for small businesses: in theory, there should be competition, yet report on report shows that they get a pretty raw deal from the banks. We seem unable to deal with that.
Does the hon. Gentleman not think that in many ways, he and I are talking a similar language? I have listened to the contributions made on the new clause, and although the question of the Lloyds takeover of HBOS was raised, no one suggested that, in the circumstances, they would have opposed it. Is it not the case that UK Financial Investments and the Government have been vocal in suggesting that when the Government divest themselves of some of the banks and other organisations taken over during that period, they will ensure that competition is to the fore in the decisions that are made?

Mark Hoban: The hon. Gentleman raises two important questions. On bank charges and whether small businesses are getting a fair deal, one challenge is to do with peoples ability to switch provider. If it is difficult to switch, the product provider has the opportunity to extract higher charges. I know that the OFT is considering the challenge of how to make it easier for people to switch providers. We may change telephone providers every year, and those who supply our gas, or we might alter our insurance every year to get a better deal, but people are very resistant to changing the people who hold their bank accounts.
If we can improve switching, we will ensure a better deal, and there will be more competition in the marketplace because that would encourage innovation. A new entrant to the banking market who thinks that people are loth to change providers will question the merit or value of entering that market. People tend to enter the market where it is relatively easy to do so, and where the barriers for entry are low, as in the case of the mortgage or credit card market. People are prepared to shop around for those things, but they are not prepared to shop around as much for bank accounts.
On the restructuring of the banking sector, it amused me to hear the hon. Gentleman say that we are all talking the same language. When we suggested last year that the Government should use their stake in RBS, Lloyds and Northern Rock to facilitate a restructuring of the banking market to increase competition, the Financial Secretary to the Treasury criticised our proposals. The only reason why the Government support the measures now is that the European Commission requires them, as a condition of state aid rules, to ensure that Lloyds and RBS divest themselves of part of their activities. Although I welcome the Governments conversion, it has not necessarily been a willing one. Competition has an important role, and there is interaction to be had with regulation.
My hon. Friend the Member for Chichester also discussed the role that competition plays as regards systemic risk. One challenge when it comes to financial stability is that in order to encourage competition in a market, it is good to have new entrants. He mentioned the barrier erected around a heavily regulated market by the fact that any new entrant must deal with the cost of compliance, but even getting authorisation to enter the market can act as a barrier. We are rightly placing great emphasis on financial stability, and that might create a situation in which the barriers to entry are increased further; we need to think about that carefully.
The hon. Member for Edmonton discussed the credit market, which has one predominant supplier. If the barriers to entry are low, the fact that there is only one supplier does not necessarily mean that consumers will get a bad deal, because if there are additional profits to be creamed off, it is possible to enter the market. However, in the situation with the Provident, quite a lot of infrastructure will need to be recreated, so the barriers to entry in that sector are high. We need to think about them and about the interaction between financial stability and encouraging innovation and competition.
My hon. Friend the Member for Chichester was right that putting the objective in the Bill would create a tension. We have had a debate about where the financial stability objective appeared in the hierarchy. Did it have equal rank with the others, or did it have primacy over the others? We reached a point where each objective balanced against the others. If we were to make competition an objective for the FSA or a successor body, that would increase the emphasis on competition in the balance that determines how the regulator fulfils its duties. That is a factor if we believe that the objectives are important and affect how the regulator conducts its activities.
We have had a helpful debate. I am pleased that my hon. Friend tabled the new clause. It has given the Committee plenty of food for thought and has clearly identified the importance of competition in demonstrating consumers right to get a good deal. We will have to consider, in the context of FSMA and any subsequent regulatory reform, how to make sure that competition is given the right standing, so that we can ensure a better deal for consumers.

Ian Pearson: As is usually the case when he is not playing party politics, the hon. Member for Chichester made a thoughtful contribution on new clause 9 and on the idea that maintaining competition should be a statutory objective for the Financial Services Authority. I think that the arguments are finely balanced, when it comes to whether maintaining competition should be a statutory objective, or whether the FSA should have regard to it.
The Government believe strongly that competition is important for economic efficiency in general and in creating efficient and responsive financial markets. To that extent, I do not think that there is any difference between any of us. We all accept the importance of competition. In my judgment, the balance of the argument would fall slightly in favour of including competition as a statutory objective of the FSA, but that is not the Governments current view.
I would like to explain why the Government believe that new clause 9 should not be in the Bill. Before I do that, I will comment briefly on the other points that the hon. Gentleman raised. He talked about the fact that a small number of large firms are easier to regulate than a large number of small firms. That might be the case, but it does not prevent the regulator from performing its current role in an effective way. I do not think that regulators set out to increase barriers to entry for new firms, and the hon. Gentleman will be aware of recent developments with new entrants into financial markets. Although we should always be on our guard against regulatory creep, or regulators acting too comfortably, it is the responsibility of other bodies to hold regulators to account and ensure that they perform their jobs effectively.

Andrew Tyrie: Will the Minister give way on a point of fact?

Ian Pearson: I will give way in a moment, but I want to pursue my line of thinking. It is not necessarily the case that a small number of large firms is likely to produce a less competitive market than a large number of small firms. That was hinted at by the hon. Member for Fareham when he suggested that fewer participants are likely to lessen peoples chances of having a good deal. It is important in competition policy to look at the dynamics of markets, and there can be very competitive markets with a small number of entrants, or uncompetitive markets with a large number of small entrants. It is up to competition authorities to address that as part of their regulatory activity. I happily give way to the hon. Gentleman on a point of fact.

Andrew Tyrie: I will wait.

Ian Pearson: Let me move on to explain why the Government are not persuaded that new clause 9 should stand part of the Bill. My personal view is that if the new clause was allowed, I am not sure that it would have a major practical effect, for some of the reasons that the Government have.
We must not forget that competition is intended to benefit the users of financial services. For the FSA, competition should not be an end in itself, but rather a means to an end. Although we must strive to get markets working better, that is because competitive markets deliver economic efficiency, which benefits society by providing consumers with better goods and better services at better prices. That is the important point. In other words, competition policy is usually an excellent complement to consumer protection regulation. However, usually is not the same as always. Consequently, if it was the case that competition might not benefit the consumer for some reason, it would be wrong to prioritise its maintenance. One example of that is when an excessive proliferation of essentially similar products actually reduces the overall efficiency of a market. Who pays for that inefficiency? Normally the consumer.
As the hon. Member for Fareham said last week when we were discussing financial education, choice can be bewildering. If the effect of a plethora of choices is that the consumer gets so confused that they make expensive decisions or abandon the idea of taking up a useful product such as an insurance policy or a savings account, that is not the outcome that we would seek. Again, that raises interesting questions out of which some behavioural economists have made careers. That is something that we need to take account of as part of our practical policy making.
That does not mean that the Government are uninterested in competition in financial servicesfar from it. The FSA should definitely continue to minimise any adverse effects of its actions on competition, and it should remain mindful of the general desirability of facilitating competition. Those are its duties under section 2(3) of the Financial Services and Markets Act 2000, and they should remain in place, in addition to the FSAs main objectives. The nature of the duty to be imposed on the FSA was considered carefully when the Act was introduced, as the hon. Member for Chichester knows, and placing such duties in the have regard to list under section 2(3) was the correct result, in the Governments opinion.
The Government have a further argument against the new clause, namely that it is not necessary. As members of the Committee are no doubt aware, as mentioned in the text of the new clause, the UK has two separate competition authorities: the Office of Fair Trading and the Competition Commission. The competition regime is world-class and it is independently ranked as one of the top three globally. As for financial services specifically, the OFT already has a duty to keep the FSAs regulations and practices under review on competition grounds, and may involve the Competition Commission. That can be found under sections 159 and 160 of FSMA.
Furthermore, to ensure that the FSA is fully involved in competition issues, it and the OFT are engaged in continuing dialogue. As the hon. Gentleman noted, last month they announced plans to strengthen co-operation on competition issues through the signing of a memorandum of understanding. It has also been agreed that the FSAs annual report will in future incorporate a section on competition in the sector, in which it will set out relevant actions that it has taken. For those reasons, the Government believe that there is no need to extend the specific objective to the FSA.
In the Governments view, the new clause would not be of benefit, given other parts of the existing statutory framework. I am sure that the hon. Member for Chichester agrees that the aim of competition is to gain better outcomes for consumers; it is not about having competition for competitions sake. A strong competition regime is in place, which is applicable to financial services. I hope that I have outlined in sufficient detail the Governments view of the work that is already in progress to strengthen further competition in UK financial services, and I hope that the hon. Gentleman will withdraw the motion.

Andrew Tyrie: I am grateful to the Minister for his reply, which, to say the least, was extremely frank and interesting. I am disappointed he thinks that I play party political games. I am not generally noted as one of the worst offenders, but in response to his admonishment, I shall try harder to do better in future.
I wish to refer to three things outlined by the hon. Gentleman, the first of which was fascinating and extremely refreshing in that he distinguished between his view and that of the Government. That is healthy. I was impressed by it. It is rare, and without going into a lengthy digression, that is because the media seize on any distinction of that type immediately to conclude that there are great divisions in the Government, as a result of which we often have the absurd position when, one minute, everyone believes one thing, and the following minute they all seem to believe something quite differentrather like ears twitching on a herd of deer. That is regrettable. It has occurred in the post-war period of British politics. It is relatively new and dates from the 60s and 70s. It is perfectly possible to have the doctrine of Cabinet responsibility without the identity of expression of view in between times.
My second point is that I was particularly pleased that the Minister personally favours inclusion of competition as an objective of the FSA. He joins what we could fairly safely call the majority party on that issue over the past decade, and I am glad to have him on the team.
The third major point that the Minister made, which I think was also very fair, was that he did not think that new clause 9 would make a great deal of difference. I do not know whether that is true, but the fact that he has given his personal view tells us that the measure is unlikely to do damage. Indeed, he did not allege that it would, even when he was expressing the Governments view.
My only regret is that the Minister did not pick up on the point that I made that we will have further change in this area anyway. I do not know if that change will come in a few months or in a few years, but it will definitely come. The Conservatives have worked very hard on this Bill and on the Act over the years. A great deal of work has been done by my party colleagues in the past decade to try to be as consensual as possible in this field. Indeed, that point was made about the original Bill, on which we laboured in this Committee Room or just next door for nearly two years.
I very much hope that as the Minister thinks this matter through, he will perhaps send back a message to say that we need to start doing some work on it internally, even if I cannot persuade him to come back on Report, because sooner or later this change will happen. In the meantime, I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Rob Marris: I do not wish to move new clauses 10 to 16, Mr. Gale.

Ordered,
That certain written evidence already reported to the House be appended to the proceedings of the Committee.(Ian Pearson.)

Ian Pearson: On a point of order, Mr. Gale. I want to take this opportunity to thank you, Mr. Gale, and Mr. Benton for the very efficient way that you have chaired these proceedings, which has ensured that we have got this Bill through in the time allocated for it.
I also want to thank the usual channels, in this case my hon. Friend the Member for Leeds, East and the hon. Member for Rochford and Southend, East for their co-operation.
I thank the clerks, who have worked extremely hard on the Bill, and the Hansard reporters, who I hope have made some good sense of my mangled English during the course of these events. I also thank the Doorkeepers and the police for the work that they have done.
I also want to thank very much indeed my team, who have provided a level of scrutiny of the Bill and who have supported it. I believe that the Bill is a significant addition to legislation in an important sector and is to be greatly welcomed.
I thank the Opposition Front-Bench spokesmen for their contributions. I must say that it is a slight shame that we have not had the opportunity to hear the words of wisdom of the hon. Member for Twickenham, but the hon. Member for South-East Cornwall was a very capable deputy and played a full part in these proceedings, as did the hon. Member for Fareham, who was characteristically thoughtful and extremely thorough. I also felt that he was extremely even-handed in the way that he put representations to me from both industry and consumer groups, while appearing, on occasion, to agree with both sides.
Lastly, I thank my Bill team, who have been terrific throughout our deliberations. Without them, I would not have sounded nearly as sensible as hopefully I have done on occasions during the passage of the Bill. They have put in a lot of hours to ensure that we have got the Bill right.
I have listened carefully to all the points made during the debate. I have not felt able to support Opposition amendments, but I have in certain areas indicated that I will consider further the points that were made. If appropriate, we will come back to them on Report. With that, Mr. Gale, thank you again for your efficient chairing of proceedings.

Mark Hoban: Further to that point of order, Mr. Gale. I would like to echo the Ministers thanks to you and your co-chairman. On the Opposition Benches, we owe a debt of gratitude to the Clerks. We are not supported by a team of parliamentary draughtsman, so we accept their help in tweaking amendments to ensure that we get the wording right. I am very grateful for their patience in dealing with such matters.
I thank the Hansard reporters, the Doorkeepers and the police, as well as all those who contributed to the oral and written evidence sessions and who made representations to us all.
I am rather flattered by what the Minister said. I agreed with both sides on certain issues, so I am clearly developing the ability to speak with confidence about whatever I have to say. Nothing I say now sounds in any way probing, so that is good. That might be a skill I will need in future.
I am grateful to the members of the Committee who participated in the oral sessions and the scrutiny stage. One of the strengths of the Committee, as in other Committees on which the Minister and I have served, has been the experience of Back Benchers that has been brought to bear. My hon. Friend the Member for Chichester has the experience of debating not only FSMA but on the Treasury Committee. The hon. Members for Edmonton, for South Derbyshire and for South-East Cornwall have contributed their expertise. They are not the only people on the Committee who have helped to illuminate our proceedings.
We have had consensus and sharp disagreements, but throughout the process the Committee has been a good-natured one and certainly one that I have enjoyed participating in.

Colin Breed: Further to that point of order, Mr. Gale. I add my thanks to all those who have helped in this interesting debate. The Bill will be part of a suite of legislation that will be ongoing well beyond the end of this Parliament and on into the next. Those who will be charged with that responsibility will have to tackle some of the issues that we have tried to tackle, because they will come back. The fundamental issues are more difficult to tackle with the state of play at the moment in financial services and in the economy generally, but some important issues have been teased out on amendments.
My personal sadness is that this is my last Bill. As many hon. Members know, I shall be standing down after about 13 years. It has been an enjoyable last Bill. To all those who are going to carry on in the job, I wish them jolly good luck.

Roger Gale: I have listened intently to what the three hon. Gentlemen have said, and I am happy to say that none of that is in any way a point of order for the Chair. However, as we are out of order, I add my thanks and those of Mr. Benton to the Officers of the House, the Clerks, without whom we simply could not do our job. I am grateful to the Committee for its tolerance of the temperature in the various rooms that we have been in, and also for the manner in which it has battled its way through inclement conditions to complete the Bill. That, by the way, is a comment on the weather and not the contents of the Bill.

Bill, as amended, to be reported.

Committee rose.